Balancing your portfolio with stocks, bonds and mutual funds, provides a unilateral balance; they all face into one positive direction. That is alright for the long term. What goes down must go up. Or was it the other way around? The question is, Is your investment portfolio counting on this? So, when constructing and maintaining your investment portfolio you should never forget one (kind of) option. Most financial advises are too positive. The amount of Buy and Hold advices outnumber the Sell advices. This is logical in a sense; in the long term, stocks move up. The risks occur however in the short term. Today I read an article about The Greenspan period (managing the Federal Reserve) which is to end shortly and together with the article we got a little graph presented, showing the ups-and-downs of the Dow. Even on a yearly graph you could distinguish quite a few of those dips. Not only investment advisors are on average more positive than negative about the market and their forecasts. Managers too are when dealing with business. Take for instance a new project; where team members start with enthusiasm. Yet, after a while, your project is hit by many incidents. As a project manager you will know this. You know you will face many uncertainties. You can plan the project, but you should always add a risk-factor when setting up the timeline. So what to do? You should always address this possibility of risk. You can do this by buying put-option. You could do this for protecting up to a tenth of a percent of your portfolio or even less. The issue is not as such the fact of protecting your portfolio, but maybe more important, protecting yourself from being over confident. Balancing your portfolio with some puts means a balance that is prepared for both the long and the short term. |
